Healthy and Vibrant Economy

The federal government spent $676 billion on national defense in FY 2019, or about 15% of total federal expenditures, compared to nearly 50% in the 1960s. Over time, a larger share of spending has been towards Social Security, Medicare, and Medicaid. Tax Policy Center

The United States needs to ensure that it maintains a healthy and vibrant economy, and strong National Defense and Security.

A healthy and vibrant economy is what fuels job creation, raises the standard of living and creates opportunity for those who are hurting, while positioning us to invest in education, technology and infrastructure – in a programmatic and sustainable way — to build a better and safer future for our country and its people.

And in a world with so many security threats and challenges, we need to maintain the best military and strongest economy. America’s military will be the best in the world only as long as we have the best economy in the world.

With all of America’s exceptional strengths, it’s apparent that something is holding us back. As it has been pointed out, the country’s economic growth has been anemic. The economy has grown approximately 20% in the last eight years, but this stands in contrast with prior average recoveries where growth would have been more than 40% over an eight-year period.

The real problem with the fiscal deficit is the uncontrolled growth of the federal entitlement programs, states Jamie Dimon, Chairman and CEO of JP Morgan Chase & Company. You cannot fix problems if you don’t acknowledge the reasons for the problems .

The extraordinary growth of Medicare, Medicaid and Social Security is jeopardizing the nation’s fiscal situation and global economic standing.

We have to address these issues. Such as Social Security, fixing it is within our grasp and by changing the qualification age and means testing, among other things.

When President Franklin Delano Roosevelt created Social Security in 1935, American citizens would work and pay into Social Security until they were 65 years old. At that time, when someone retired at age 65, the average life span after retirement was 13 years.

Today, the average person retires at age 62, and the average life span after retiring is just under 25 years. The core issue underpinning the entitlements problem is healthcare in the United States. There are a few places where the U.S. can do better:

  • The U.S. has some of the best healthcare in the world, including its doctors, nurses, hospitals and clinical research. However, we also have some of
    the worst – in terms of some outcomes and costs.
  • Administrative and fraud costs are estimated to be 25% to 40% of total healthcare spend.
  • Chronic disease accounts for 75% of spend concentrated on six conditions, which, in many cases, are preventable or reversible.

While solutions fix to this problem are not agreed upon, the process that will help country fix it are. The country needs to form a bipartisan group of experts whose direct charge is to fix the  healthcare system. This can be done, and if done properly, it will actually improve the outcomes and satisfaction of all American citizens.

There are several obstacles holding the country back, and, just as it took many years for these obstacles to develop, it is going to take sustained effort over many years to right the course.

When you look at this list in totality, it is significant and fairly shocking. Most of these areas have become consistently worse over the last 10 to 20 years, and it is hard to argue that they did not meaningfully damage the country’s economic growth. More importantly,  there has never been an economic model that accounts for the extremely damaging aspects of these items. This is not secular stagnation — this represents senseless and misguided policies.

  • We had a hugely and increasingly uncompetitive tax system driving companies’ capital and brainpower overseas.
  • Excessive regulations for both large and small companies reduced growth and business formation. The ease of starting a business in the United States worsened, with small business formation dropping to the lowest rate in 30 years.
  • Bank credit growth was tepid during this recovery. Remember, bank credit growth directly relates to economic growth, although it’s often difficult to figure out the cause and effect. But there is no question that the things that reduce credit availability, in turn, reduce growth. One area where we know this happened was in the mortgage market. Household formation has been slow because many young adults have had a difficult time finding work and, with the help of their families, have gone back for more schooling. The inability to reform mortgage markets has dramatically reduced mortgage availability. In fact, our analysis shows that, conservatively, more than $1 trillion in mortgage loans might have been made over a five-year period.
  • Labor force participation — particularly among men aged 25-54 — dropped dramatically. An estimated 2 million Americans are currently addicted to opioids (in 2016, a staggering 42,000 Americans died because of opioid overdoses), and some studies show this is one of the major reasons why men aged 25-54 are permanently out of work. Even worse, 70% of today’s youth (ages 17-24) are not eligible for military service, essentially due to a lack of proper education (basic reading and writing skills) or health issues (often obesity or diabetes).
  • Our schools are leaving too many behind. In some inner city schools, fewer than 60% of students graduate, and of those who do, a significant number are not prepared for employment. Additionally, many of our high schools, vocational schools and community colleges do not properly prepare today’s younger generation for the available professional-level jobs, many of which pay a multiple of the minimum wage.
  • Infrastructure is a disaster. It took eight years to get a man to the moon (from idea inception to completion), yet it now can sometimes take a decade to simply get the permits to build a bridge or a new solar field. The country that used to have the best infrastructure on the planet by most measures is now not even ranked among the top 20 developed nations according to the Basic Requirement Index.
  • Our immigration policies fail us in numerous ways. Forty percent of foreign students who receive advanced degrees in science, technology and math (300,000 students annually) have no legal way of staying here, although many would choose to do so. Most students from countries outside the United States pay full freight to attend our universities but many are forced to take the training back home. From my vantage point, that means one of our largest exports is brainpower.
  • Our nation’s healthcare costs are twice the amount per person compared with most developed nations.
  • Our litigation system is increasingly arbitrary, capricious, wasteful and slow.

Economic analysis provides a sense of the costs associated with misguided policies. The Congressional Budget Office estimates the cost of failing to pass immigration reform earlier this decade at 0.3% of GDP a year. An International Monetary Fund study suggests that a 1% of GDP rise in infrastructure investment in 2013 would have delivered a similar boost to advanced economy GDP over the subsequent decade. J.P. Morgan analysis indicates that the cost of not reforming the mortgage markets could be as high as 0.2% of GDP a year. Taken together with the costs of excessive regulation and a depressed prime age labor participation rate, it is easy to conclude that corrections in policy could add more than 1% of GDP annually. And this does not account for many of the items I mentioned in the prior list.

The end result is that our economy is still leaving many behind. Much of this is probably self-inflicted. While a job used to provide a ticket to the middle class, today more people are getting stuck in low-wage work.

Historically, we’ve thought of these jobs as providing the first rung on a career ladder — a chance for workers to prove themselves and develop skills before moving on to other, better paying jobs. But a growing number of Americans are left hanging on this first rung: During the mid-1990s, only one in five minimum-wage workers was still at minimum wage a year later. Today, that number is nearly one in three.


References:

  1. https://reports.jpmorganchase.com/investor-relations/2017/ar-ceo-letters.htm
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